A $25 million no-bid repair program run by the city's Housing Authority spent more than twice the going rate to fix apartments for the poor, paid contractors for work that was never done, and gave millions to firms run by relatives of managers, according to a federal audit.
The audit, a draft copy of which was obtained by The Sun, cites problems in almost every area of the authority's operations. It provides fresh details about a program in which employees apparently inflated cost estimates for repairs to coincide with proposals by the no-bid contractors, and then failed to check to see if the work was ever done.
Authority managers purchased Chevy Blazers for their personal use, the audit says. They paid for stoves and refrigerators that were never installed. They bought doors and windows that were never hung. They purchased electrical wiring for outlets and switches that never existed.
Federal inspectors also found that the authority knowingly exposed families to dangerous levels of lead paint and dust. In one apartment, contamination levels were nearly 19 times higher than federal standards, the audit says.
In the end, the no-bid repair program -- the focus of a federal grand jury probe -- failed to meet the authority's basic mission: renovating buildings and increasing apartment space in the poorest sections of Baltimore, according to the audit.
Last night, the nation's top housing official, Henry G. Cisneros, issued a statement saying the authority's practices were intolerable. "The findings raised in this report are serious," he said. "Misuse of federal funds -- particularly with respect to funds that are intended to help the poorest of families -- cannot be tolerated."
Mr. Cisneros, who heads the U.S. Department of Housing and Urban Development, pledged to work with the city's mayor and housing officials to ensure that the audit findings will be "fully and promptly addressed."
The audit was compiled after a seven-month probe by HUD's regional Inspector General. Investigators started to examine the authority in December after contractors called a federal hot line to complain they had been frozen out of the no-bid program.
A final copy of the audit is expected to be released tomorrow.
Executive Director Daniel P. Henson III criticized the draft report yesterday. He said it misinterpreted regulations, and misstated or ignored relevant facts. He said some of the findings would be modified in the final report.
Mr. Henson provided The Sun with his 39-page response to the draft report. He accused the auditors of "simplistic second-guessing" of the no-bid program. "This is a cheap shot," he said. "This is very sloppily done."
Funded by federal subsidies and monthly rents, the Housing Authority is responsible for managing 18,000 publicly owned apartments and single-family homes in Baltimore.
The draft report portrays the Housing Authority as an agency run amok. It could not account for more than $700,000 in lost inventory. Its reserve fund fell to dangerously low levels. It hired maintenance workers with no skills. It signed a contract with a security firm that employed felons. It spent more than $370,000 on a security system that didn't work.
One of the few positive audit findings for the authority: It collected rent on time.
No-bid program
Much of the 45-page report focuses on the no-bid repair program. Mr. Henson started the no-bid program last year, shortly after Mayor Kurt L. Schmoke appointed him to head the Housing Authority. Mr. Henson claimed there were 2,400 vacant, rundown apartments that needed quick repairs to create housing for the poor.
To speed up the repairs, Mr. Henson declared a housing emergency in the city -- a move that he said allowed him to bypass federal rules and award contracts without competitive bids. He said the no-bid program would shorten the list of 18,000 families waiting for places to live.
But the auditors said the authority failed to get approval from HUD, and never explained why the work couldn't have been performed with competitive bids.
In all, the authority renovated 1,136 apartments under the no-bid program. When it was over, Mr. Henson failed to accomplish his goal -- creating more public housing for the poor, the audit says.
The auditors found that the program was flawed from the start. It began as a small, $1 million project that was supposed to spend $10,000 on repairs for each apartment. But it quickly grew into a $25 million program that spent as much as $95,000 for one unit.
The average sale price of a single-family home in Baltimore is $75,319.
Twice the rate
Auditors said the no-bid contractors charged more than twice the amount as contractors who performed work for the authority under competitive bids. The auditors said that the authority also apparently inflated its own cost estimates to coincide with the higher proposals submitted by the no-bid contractors.
"Work was overpriced and incomplete," the audit says.
Auditors sampled 65 apartments with contracts worth $2.6 million. They found that the authority paid contractors at least $900,827 for unneeded materials, overpriced supplies and work that was never performed.
Contractors charged the authority for tile they never laid, paint they never used and drywall they never installed. They also charged the authority double the going rate for stoves and refrigerators -- and then never installed them.
"It appears authority inspectors may not actually inspect work at all," the audit says.
Housing Authority managers also used money from the no-bid program to buy eight, 4-wheel drive Chevy Blazers for $150,000, according to the audit and interviews. "The vehicles were for take-home use by management," the audit says. "There is no known basis for an emergency purchase of vehicles for management staff."
In a section of the audit titled "Conflicts of Interest," federal investigators criticized the authority for handing out millions in no-bid repair contacts to relatives of a Housing Authority manager and a board member.
Together, relatives and friends of authority managers and of Mayor Schmoke received more than $5 million in no-bid contracts -- accounting for nearly 20 percent of the entire no-bid repair program, according to auditors, corporate records and interviews.
The contractors include:
* Senior authority analyst Anita Chavis' relative, Sedrick Chavis, who received about $3.5 million.
* Authority board member Larry Jennings Jr.'s parents -- Larry Sr. and Vergie, and his sister, Georgia M. Page, who received about $1.2 million.
* Mayor Schmoke's brother-in-law, John A. Palmer, who received about $327,000.
* Mr. Henson's childhood friend, Westley Johnson, who received about $300,000.
The authority's conflict of interest rules prohibit agency employees from benefiting from projects involving themselves or their immediate family. The rules do not cover board members, ** such as Mr. Jennings.
Still, the auditors recommended that authority employees disclose conflicts and potential conflicts of interest in the future.
Reserve fund drained
Auditors also found that the no-bid repair program and other fiscal problems drained the authority's reserve fund. By May of this year, the reserve fund could only pay for less than one day's worth of operating expenses.
The no-bid program is now the focus of a federal grand jury investigation. Two authority managers have pleaded guilty to corruption charges, admitting in federal court that they took cash, trips and gifts in return for steering work to contractors.
In a potentially damaging discovery, auditors found that children were exposed to high levels of lead paint and dust in public apartments. In one case, the authority knew children were being exposed to dangerous levels but didn't notify parents for six months, the auditors said.
Lead poisoning can cause blindness, paralysis, brain damage, even death.
Auditors found that the authority placed residents in more than 200 renovated apartments before testing for lead. At one apartment on Cator Avenue, a 3-year-old child lived in an apartment that later registered lead levels 19 times higher than federal standards.
Auditors also pointed out that a year earlier, the authority tested 57 apartments at Claremont Homes in East Baltimore, finding 96 percent were contaminated. But the authority didn't tell the residents until six months later -- when parents started to complain that children had elevated lead levels in their blood, the auditors said.
The Housing Authority said it didn't knowingly house children in contaminated apartments. Instead, authority managers blamed HUD, claiming the federal government never told them how to notify residents of the test results.
Said the auditors: "The authority has neglected its responsibility to ensure the safety of the residents and, as a result, has placed residents at risk for contracting lead paint contamination."
Security contracts
Auditors also questioned a pair of contracts the agency signed to provide security services for the housing developments.
The authority awarded a $4.6 million contract to a company run by the Nation of Islam to patrol the developments, even though the group's bid was the highest. At the time, Executive Director Henson defended the contract, claiming NOI Security was the only contractor that "understood the needs of public housing," the audit says.
Auditors said that wasn't quite the case.
"Interviews with employees of [NOI Security] noted that the guards did not have any special training or understanding of public housing needs," the audit says.
They found that NOI Security hired nine guards from another security firm that had been turned down for the contract. The firm also placed 29 guards on the payroll who had been convicted of felonies -- close to half the guards hired to handle the contract, the auditors said.
The auditors also said the authority squandered $373,787 when it purchased a security turnstile system for 18 high-rise apartment buildings. The authority bought the system without bids.
With little planning and testing, the turnstiles were installed and removed after the authority discovered residents despised them and they were easily vandalized. The Housing Authority sold the system to Washington for a fraction of the purchase price: $60,000
FINDINGS FROM DRAFT AUDIT
Here are findings from a federal draft audit of the city's Housing Authority, and responses from authority executive director Daniel Henson III:
Finding: The authority improperly awarded more than $25 million in no-bid contracts to repair apartments and failed to decrease vacancy rates.
Response: The authority was justified in giving out no-bid contracts because of the threat of vandalism to vacant units and long waiting lists. Vacancy rates did not decrease because the authority had to transfer residents from substandard buildings.
Finding: The authority paid too much for no-bid repair work, and inspectors failed to make sure contractors completed work. It should repay HUD $725,759.
Response: The authority asked contractors involved in questionable work to finish their jobs. It says the auditors' appraisals are inaccurate.
Finding: The authority exposed residents to lead poisoning.
Response: During the early stages of the emergency no-bid repair program, the authority "inadvertently overlooked" lead testing. After the error was discovered, the authority tested the units. Contractors were ordered to remove lead and dust.
Finding: The authority's maintenance operation is poor.
Response: The authority will review the operation. But it says the deficiencies should not be included in the findings because it admitted them at the start of the audit.
Finding: The authority's leasing operation does not place applicants in units according to waiting list rankings.
Response: Contending the finding is an "sensationalistic inaccuracy," the authority says its waiting list is accurate. Selections reflect the complexity of leasing public housing.
Finding: The authority needs to change how it awards security contracts. The authority awarded a $4.6 million contract to a firm that was the highest bidder and had 29 felons working as guards.
Response: The authority announced that the contract would not be awarded on the basis of cost and said the selection was reasonable. Guards are allowed to work while background checks are being conducted. During that time, the authority "takes appropriate steps" to ensure the safety of its residents.
Finding: The authority ignored basic checks that led to potential conflicts of interest in the awarding of millions of dollars in noncompetitive contracts to relatives of a board member and an employee.
Response: Conflict of interest laws do not cover authority board members, since they are not involved in approving contracts, and the relationship between an employee and a contractor is a distant one.
CISNEROS STATEMENT
The following statement was issued last night by Henry G. Cisneros, secretary of the federal Department of Housing and Urban Development:
"I will be working with the mayor and local leaders to ensure that the issues raised by the HUD Inspector General's report are fully and promptly addressed. The findings raised in this report are serious. Misuse of federal funds -- particularly with respect to funds that are intended to help the poorest of families -- cannot be tolerated.
"The report should be considered in the context of the progress that the mayor and the leaders of the Housing Authority have made in creating a vision for the future of public housing in Baltimore. For the first time in decades, public leaders are developing realistic options to address one of Baltimore's pressing problems: the continued existence of deteriorating, ill-conceived, high-rise family developments. That vision as well as the urgent matters set forth in this report require that HUD work closely with local leaders."